Financial volatility modeling with option-implied information and important macro-factors

The research debate on the informational content embedded in option prices mostly approves incremental predictive power of implied volatility estimates for financial forecasting beyond that contained GARCH and realized variance models. Contributing to this ongoing debate, we introduce novel AIM-HEAVY model, a tetravariate system with asymmetries, option-implied volatility, economic uncertainty variables daily intra-daily dispersion measures included benchmark HEAVY specification. We associate macroeconomic uncertainties explore macro-financial linkages high-frequency domain. In vein, further focus factors exacerbate stock market represent major threats stability. Hence, our findings are directly connected current world-wide Coronavirus outbreak. Financial volatilities already close their crisis-peaks amid generalized fear about controversial policies support societies system, especially case heavily criticized UK authorities’ delayed limited response.